23rd Annual Corporate Survey
Area Development Special Presentation (Dec/Jan 09)
When asked about how the downturn in the U.S. economy (up until late summer 2008) had affected their facility plans, just 24 percent of the respondents said their new facility plans had been put on hold, while 22 percent said they were still planning to open new facilities.
The subprime mortgage crisis that has resulted in a near meltdown of the financial system, a decline in consumer confidence and spending, increasing unemployment, and near-bankruptcy for the nation's largest manufacturers - the U.S. auto industry - has pushed the U.S. economy into a recession that may prove to be more severe and lengthy than previously assessed by the economic pundits. The National Bureau of Economic Research has, in fact, just announced that the recession officially began in December 2007. This slowdown in industrial activity - which was actually predicted by the respondents to our 2007 Corporate Survey, although to a lesser degree - is reflected in U.S. GDP contracting by 0.5 percent in the third quarter of this year. Some analysts are already predicting it will shrink by another 1 or even 2 percent in the September-December period, once the numbers are finally crunched.
According to the third quarter edition of PricewaterhouseCoopers Manufacturing Barometer, two-thirds of U.S.-based industrial manufacturers are, in fact, pessimistic about the U.S. economy over the coming year. They are scaling back growth projections for their companies' revenue, estimating a 2.8 percent average revenue growth rate in the third quarter - down from the 3.7 percent revenue growth rate predicted the previous quarter.
A report by the Manufacturers Alliance/MAPI piles on more bad news. That group predicts growth in manufacturing production will decline by 1.4 percent this year, following low growth of 1.7 percent in 2007. This will be followed by a steep 4.2 percent drop in growth in 2009, as companies scale back. U.S. demand for goods is down as consumers' wealth has decreased due to declining home values and shrinking nest eggs. And many who still have jobs are not sure for how long, with companies announcing plant closures and layoffs almost daily. In fact, U.S. demand posted its first annual contraction in 17 years - a 1.8 percent decline - according to the Bureau of Economic Analysis.
Since corporate decisions to expand and open new facilities are generally based on heightened consumer demand, we should expect the results of our 2008 Corporate Survey to reflect the current economic slowdown. However, readers should note that this survey was conducted in August 2008, with most of the responses received early to mid-September, thus not reflecting the events taking place in the financial markets and other industries during the year's final quarter. Let's examine the Corporate Survey results.